The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

NOTE! This site uses cookies and similar technologies.

If you not change browser settings, you agree to it. Learn more

I understand

Cookies are a technology which we use to provide you with tailored information on our website. A cookie is a piece of code that is sent to your internet browser and is stored on your system.

Please see below for a list of cookies this website uses:

Cookie name: _utma, _utmb, _utmc, _utmz

Purpose: Google Analytics cookies. Google Analytics is software that lets us analyse how visitors use our site. We use this information to improve our website and provide the best experience to visitors.

Function: These cookies collect data in an anonymous form. Please see Google's privacy policy for further information. To opt out of these cookies, please visit Google's website.

Cookie name: Sitecore

Purpose: Stores information, such as language and regional preferences, that our content management system (the system we use to update our website) relies on to function.

Function: This is a session cookie and will be destroyed when you close your browser. This cookie is essential for our website to function.

Cookie name: ASP.net_session

Purpose: Allows the website to save your session state across different pages. For example, if you have completed a survey, the website will remember that you have done so and will not ask you to complete it again when you view another page on the website.

Function: This is a session cookie and will be destroyed when you close your browser. This cookie is essential for our website to function.

Cookie name: website#sc_wede

Purpose: Indicates whether the user's browser supports inline editing of content. This indicates whether our content management system will work for our website administrators in their internet browsers.

Function: This is a session cookie and will be destroyed when you close your browser. This cookie is essential for our website to function.

Cookie name: redirected

Purpose: Remembers when the site forwards you from one page to another, so you can return to the first page. For example, go back to the home page after viewing a special 'splash' page.

Function: This is a session cookie, which your browser will destroy when it shuts down. The website needs this cookie to function.

Cookie name: tccookiesprefs

Purpose: Remembers when you respond to the site cookie policy, so you do not see the cookie preferences notice on every page.

Function: If you choose to remember your preference with a temporary cookie, your browser will remove it when you shut it down, otherwise the cookie will be stored for about a year.

Cookie name: _ga

Purpose: Additional Google Analytics cookie. Google Analytics is software that lets us analyse how visitors use our site. We use this information to improve our website and provide the best experience to visitors.

Function: These cookies collect data in an anonymous form. Please see Google's privacy policy for further information.

Cookie name: SC_ANALYTICS_GLOBAL_COOKIE, SC_ANALYTICS_SESSION_COOKIE

Purpose: Sitecore Analytics is software that lets us analyse how visitors use our site. We use this information to improve our website and provide the best experience to visitors.

Function: These cookies collect data in an anonymous form. When you close your browser, it will delete the 'session' cookie; it will keep the 'global' cookie for about one year.

Facebook cookies

We use Facebook 'Like' buttons to share site feedback. For further information, see Facebook's cookie policy page.

Twitter cookies

We use Twitter 'Tweet' buttons to share site feedback. For further information, see Twitter's privacy statement.

YouTube cookies

We embed videos from our official YouTube channel. YouTube uses cookies to help maintain the integrity of video statistics, prevent fraud and to improve their site experience. If you view a video, YouTube may set cookies on your computer once you click on the video player.

Cookies pop-up

When you close the cookies pop-up box by clicking "OK", a permanent cookie will be set on your machine. This will remember your preference so that the pop-up doesn't display across any pages whenever you visit the website.

Opting out/removing cookies

To opt out of Google Analytics cookies, please visit Google’s website.

You can also control what cookies you accept through your internet browser. For details on how to do this, please visit aboutcookies.org. Please note that by deleting our cookies or disabling future cookies you may not be able to access certain areas or features of our website.

mailing list
donate now
join now
shop

Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Simplifying Brexit: Maintaining third-party trade deals after Brexit

Memorandums of Understanding, or exchange of notes/letters, can form a key part of the necessary transitional arrangements as the UK moves from being an EU member state to an independent nation.

15th March 2017
Type text for SEO (example Bruges Group : Image Title)

In our report What it will look like: How leaving the EU and the Single Market can be made to work for Britain[1] we explained that it should be relatively easy for the UK to maintain interim tariff-free trade with the countries who have signed deals with the EU, after Brexit.

 

‘The very worst case scenario is that the parties, UK and the [third party country] just need to deposit notification with the UN, or just [formally] inform the other parties if it’s not deposited at UN, that the treaties will continue and apply to UK after our secession. In other words, all these trade treaties don’t need to be renegotiated by an independent UK. Trade with other nations around the globe will continue as before.’

 

Back in December 2016, we also wrote that legal ‘devices’ such as MoU’s and ‘exchanges of letters’ could be extremely useful to the UK, the EU and ‘third countries’ during the Brexit process:[2]

 

‘A Memorandum of understanding (MoU) is an established device in public international law; less official that a treaty but more than a gentleman’s agreement. MoU’s can take various forms and can serve wildly different purposes. They can be short and cover one specific issue or be lengthy, covering a range of topics.

 

‘While they lack the legal certainty of treaties, the semi-official nature of MoUs means that one (or several relating to different areas of co-operation) could likely be signed quickly, without extensive consultation, parliamentary chicanery or ratification delays – as opposed to a potentially lengthy Free Trade Agreement (FTA) ratification.

 

‘These interim documents could help avoid a potential ‘cliff edge’ scenario as the 2 year article 50 period draws to a close in 2019.’

 

A recent report by the House of Commons Foreign Affairs Committee confirms much of what we said.[3]

 

In the report, representatives for The Bar Council Brexit Working Group, Professor Derrick Wyatt QC and Hugo Leith stated that: “There are 30+ countries to which the UK exports tariff-free under agreements between the EU and non-EU countries.”

 

But the Bar Council evidence suggests how this trade could be maintained after Brexit:

 

“In the event of an unplanned Brexit, the EEA agreement will cease to provide a basis for tariff-free trade between the UK and those three (EFTA/EEA) countries. It is likely that in the longer term, the UK will conclude a free trade agreement with these three EFTA states, in similar terms to those which it agrees with the EU. In the immediate aftermath of an unplanned Brexit, however, the UK would wish to carry on trade with these countries as if the EEA agreement were still in force.

 

“The UK might achieve this by an exchange of notes, in the international law sense (That is to say, a binding international agreement in the simplified form of an exchange of correspondence containing or incorporating by reference the terms of agreement), with the countries concerned, agreeing to conduct their trade by reference as far as possible to the EEA agreement, as if it were still in force between the parties concerned. This would in effect amount to a transitional arrangement as regards the UK and the three countries concerned, to be superseded in due course by a free trade agreement between the UK and the EFTA countries.”

 

They also suggested that when it came to relations between the UK and third countries, the UK and the third countries might wish to “put the arrangement on a sounder legal footing. It might achieve this by agreeing in an exchange of notes (in the international law sense) with country C to continue trade after Brexit on the same terms as before, referring to the agreement in question, and to any clarifications or modifications necessary to ensure continuity of performance of the trade obligations under the treaty. By such means, the UK might avoid WTO trade on the one hand, and putting a wholly new trade agreement in place, on the other, which would take time, and would not be achievable before Brexit.”

 

In short then, there is no need to assume that the UK will lose access to the trade deals that we have taken part in during the period we have been members of the EEC/EC/EU.

 

As the UK Government website states:

 

‘Like a treaty, an MoU can have a variety of names and can also be either in the form of an exchange of notes or a single document. However, the formalities which surround treatymaking do not apply to it and it is not usually published. Confusingly some treaties are called memoranda of understanding.’[4]

 

MoUs, or exchange of notes/letters, can therefore form a key part of the necessary transitional

arrangements as the UK moves from being an EU member state to an independent nation.


[1] https://www.brugesgroup.com/component/content/article/8-papers/1243-what-it-will-look-like-how-leaving-the-eu-and-the-single-market-can-be-made-to-work-for-britain?Itemid=101

[2] https://www.brugesgroup.com/blog/mou-the-key-to-a-smooth-brexit

[3] https://www.publications.parliament.uk/pa/cm201617/cmselect/cmfaff/1077/1077.pdf

[4] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293976/Treaties_and_MoU_Guidance.pdf

 

Continue reading
1992 Hits
0 Comments

Another nail in the coffin of the Single Market

Last month, an event occurred which got little fanfare, but is likely to have a significant effect on the future of the UK, especially after Brexit. What happened was that the WTO Trade Facilitation Agreement has now entered into force.

10th March 2017

The Single Market

Lord Lamont, the former UK Chancellor of the Exchequer wrote in The Telegraph:wto

‘The single market is open to all advanced economies, in exchange for paying a relatively modest tariff of 3 to 4 per cent, something that evidently does not stop non-EU countries from selling within it.

‘Every developed country has access to the single market. The EU has a relatively low external tariff with the exception of certain goods such as agriculture.’[i]

When taken prima facie, Lord Lamont’s comments are seemingly correct. Only those countries who are essentially rogue states or have violated international agreements don’t have the ability to conduct trade with the EU, and the EU’s external tariffs are fairly low.

But Tariffs are only half of the story.

The problem of tariffs could be easily addressed by the UK signing a goods Free Trade Agreement (FTA) with the EU. Given the high volume of UK- EU 27 trade, this is seemingly a given.

A basic FTA need not take long to complete. The EU’s earlier iteration the European Economic Community (EEC) concluded basic FTAs in the early 70’s that took 6-7 months to agree, sign and come into force.

But the other half of the story relates to non-tariff barriers (NTBs), sometimes called "Non-Tariff Measures (NTMs)". These comprise everything else that can slow down trade or make it more expensive or complex.

The European Commission describes the Single Market as:

‘…one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. The Commission works to remove or reduce barriers to intra-EU trade and prevent the creation of new ones so enterprises can trade freely in the EU and beyond. It applies Treaty rules prohibiting quantitative restrictions on imports and exports (Articles 34 to 36 TFEU ) and manages the notification procedures on technical regulations (2015/1535) and technical barriers to trade.’[ii]

So the Single Market goes beyond tariff reduction, and encompasses far more than just a Free Trade agreement. This is why the ‘remain’ side in the EU referendum campaign were so concerned about the UK leaving the European Union’s Single Market.

‘Remainers’ believe that after Brexit, even if the UK does get a Free Trade Agreement, our importers and exporters will be deluged with red tape, endless forms, checks and other barriers to entry as we will be operating outside the Single Market.

These are valid concerns, but we believe they are largely exaggerated – and here are the reasons why:

wcoThe EU has signed up to the WCO

In July 2007[iii], the EU signed up to the World Customs Organization (WCO) which works to enhance customs co-operation between signatory countries and works to simplify issues such as Rules of Origin (ROO).

From the European Commission’s own press release:

On 30 June 2007, the Council of the World Customs Organization (WCO) decided to accept the request of the European Union to join the WCO as of 1st July 2007. This decision grants to the European Union rights and obligations on an interim basis akin to those enjoyed by WCO Members.

‘The WCO plays an important role in promoting international customs co-operation and addressing new challenges for customs and trade. It is deeply involved in designing and implementing policies worldwide that integrate measures, which help ensure supply chain security, combat counterfeiting, promote trade and development, as well as guarantee efficient collection of customs revenues. Membership of the WCO highlights and confirms the central role and competence of the EU in international discussions on customs issues including customs reform. EU involvement in the WCO will focus on the full spectrum of customs issues, in particular the following broad areas:

  • Nomenclature and classification in the framework of the Harmonised system;
  • Origin of goods;
  • Customs value;
  • Simplification and harmonisation of customs procedures and trade facilitation;
  • Development of supply chain security standards;
  • Development of IPR enforcement standards;
  • Capacity building for customs modernisation and reforms, including in the context of development cooperation;
  • Mutual Administrative Assistance for the prevention, investigation and repression of customs offences.

‘The EU is a contracting party to several WCO Conventions, and contributes to the work of this organisation, including by ensuring presence and coordination with the Member States in defining and representing EU positions in the relevant bodies managing these conventions.’

The UK signed up to the WCO in the 1950’s and is a signatory in its own right, so will be able to address customs issues with the EU via this body after Brexit.

 

Harmonisation with EU rules

The UK’s rules and regulations are already synchronised with EU/EEA (European Economic Area) regulations and standards after decades of membership. This will also be true on the day after Brexit due to the Great Repeal Bill. Hence a strong (if not overwhelming) argument for ‘rules equivalence’ can be made.

 

The WTO Agreement on Rules of Origin (ROO)

This agreement encourages WTO countries (including all EU countries) to have fair and transparent rules pertaining to Rules of Origin:

 wtostructure

These rules state that:

‘Rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade.  They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin….rules of origin are administered in a consistent, uniform, impartial and reasonable manner’.[iv]

 

Guidelines in the EU treaties

treatylisbonArticle 8 of the Lisbon Treaty states that:

‘The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.’[v]

As the UK will become a new ‘neighbouring country’ after Brexit, the EU is compelled to deal with us according to the Article 8 terms.

 

WTO Technical barriers to trade Agreement

The TBT agreement is key – it means that signatories (again, including the EU) agree to abide by rules about international product and technical standards. From the European Commission’s website:

The TBT notification procedure helps prevent the creation of international technical barriers to trade. It was introduced by the Agreement on Technical Barriers to Trade (the TBT Agreement), a multilateral agreement administered by the World Trade Organisation (WTO). It gives participants advanced knowledge of new technical regulations or conformity assessment procedures envisioned by other countries. The EU’s participation in the TBT Agreement helps businesses in EU countries access markets outside the EU.’

 

 

Aim of the TBT notification procedure

To avoid any potential technical barriers to trade, WTO Members submit national legislation at draft stage to other members of the TBT Agreement. They can then assess the impact on their exports and identify any provisions breaching the Agreement.

While allowing all WTO Members to maintain their right to adopt regulations, the TBT Agreement aims to:

  • prevent the creation of unnecessary and unjustified technical barriers to international trade;
  • prevent the adoption of protectionist measures;
  • encourage global harmonisation and mutual recognition of technical standards;
  • Enhance transparency.[vi]

The commission somewhat downplays the TBT agreement, however. What it actually states is that:

‘Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.

‘Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.

‘Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations. Members shall give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations.’[vii]

Since UK regulations and standards will be equivalent to their EU counterparts from day one, and will continue to meet international standards going forward, it will be extremely difficult for the EU to reject UK products sold into the EU market.

 

WTO Trade Facilitation Agreement

The most recent agreement, the WTO Trade Facilitation Agreement (TFA) will further increase trade co-operation.

As the WTO website states:

‘The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.’[viii]

Perhaps especially important for Northern Ireland post-Brexit, the TFA also states that:

‘Each Member shall ensure that its authorities and agencies responsible for border controls and procedures dealing with the importation, exportation, and transit of goods cooperate with one another and coordinate their activities in order to facilitate trade.

‘Each Member shall, to the extent possible and practicable, cooperate on mutually agreed terms with other Members with whom it shares a common border with a view to coordinating procedures at border crossings to facilitate cross-border trade.’

The WCO welcomed the ratification of the TFA agreement in their press release of 22 February 2017, in which they wrote:

‘The World Customs Organization (WCO) congratulates the World Trade Organization (WTO) on the entry into force today of the WTO Trade Facilitation Agreement; an agreement that will expedite the movement, release and clearance of goods, including goods in transit, and which sets out measures for effective cooperation between Customs and other authorities, as well as provisions for technical assistance and capacity building in this area.

‘The WCO takes this opportunity to highlight that it will continue to seek improvements throughout the global supply chain to obtain the highest levels of safety, security and integrity, which will enhance trade facilitation for compliant actors. This will ultimately have a positive effect on the relationship between all border agencies and the Private Sector.

‘The entry into force of the Trade Facilitation Agreement (TFA) is an important milestone for the international trade and Customs community, coming about as a result of the fact that it has been ratified by 110 WTO Members, which pushes it above the threshold needed to take effect, namely ratification by two-thirds of the WTO’s 164 Members.’[ix]

 

In conclusion:

  • The volume and UK and EU will likely at least sign a basic goods FTA; meaning tariff-free goods trade will continue.
  • The UK’s rules and regulations are already synchronised with EU regulations and standards. This will also be true on the day after Brexit.
  • The UK and EU are signed up to the WCO, which exists to help simplify and resolve customs issues.
  • The WTO TBT agreement prohibits the EU from banning UK goods that meet international standards.
  • The WTO agreement on Rules of Origin means that the EU will have to ensure rules of origin are administered “in a consistent, uniform, impartial and reasonable manner” when dealing with exports from the UK.
  • The WTO Trade Facilitation agreement means the EU must co-operate with the UK on issues around the “movement, release and clearance of goods”.

When we combine these factors together we see that after Brexit, UK trade with the EU will be very similar after Brexit as before Brexit.

The EU has signed up to many agreements and treaties which in effect reduce the uniqueness of the single market.

Britain can therefore essentially have almost duplicate trade relationship by falling back on these international agreements (if necessary) which would mean that the UK could have the majority of the benefits of Single Market membership, but be free to choose which rules to obey when not exporting to the EU 27 countries or for domestic sale.

The TFA might not then be the final nail in the Single Market coffin (it is still useful to EEA members), but it is one substantial step towards reducing the importance of the Single Market to a post-Brexit UK.


[i] http://www.telegraph.co.uk/news/2016/06/13/not-only-can-britain-can-leave-the-eu-and-have-access-to-the-sin/

[ii] https://ec.europa.eu/growth/single-market_en

[iii] https://ec.europa.eu/taxation_customs/business/international-affairs/international-customs-cooperation-mutual-administrative-assistance-agreements/world-customs-organization_en

[iv] https://www.wto.org/english/docs_e/legal_e/22-roo_e.htm

[v] http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-european-union-and-comments/title-1-common-provisions/6-article-8.html

[vi] https://ec.europa.eu/growth/single-market/barriers-to-trade/tbt_en

[vii] https://www.wto.org/english/docs_e/legal_e/17-tbt.pdf

[viii] https://www.wto.org/english/tratop_e/tradfa_e/tradfa_introduction_e.htm

[ix] http://www.wcoomd.org/en/media/newsroom/2017/february/wco-welcomes-entry-into-force-of-the-wto-trade-facilitation-agreement.aspx

Recent Comments
Robert Oulds
Thank you for your comment. That was covered first in the Bruges Group paper What it will look Like: https://www.brugesgroup.com/m... Read More
Thursday, 16 March 2017 23:31
Robert Oulds
Earlier we also covered those points here: http://www.brugesgroup.com/blog/trade-issues-which-must-be-solved-by-david-davis-brexit... Read More
Monday, 20 March 2017 10:09
Continue reading
4374 Hits
4 Comments

What it will look like: How leaving the EU and the Single Market can be made to work for Britain

The PM, Theresa May, must focus on eliminating tariffs and clearing the EU's burdensome barriers to trade

17th January 2017

The Bruges Group report What it Will Look Like: How leaving the EU and the Single Market can be made to work for Britain details the potential challenges the UK faces when it leaves the EU. The report also explains how these problems can be addressed by Her Majesty's Government, ahead of Theresa May's planned Brexit speech on Tuesday 17th January 2017.

Only by knowing the potential pitfalls can the Prime Minister hope to mitigate and eliminate the EU’s burdensome trade rules and bureaucracy. The UK can then take advantage of the global opportunities that await us.

Drawing upon decades of research and analysis, this report clearly explains how:

  • There is no such thing as a truly 'Hard Brexit' - but there are significant obstacles.
  • A UK-EU trade agreement, focused on tariff reduction and clearing customs, could take just 18 months to complete.
  • The UK's bargaining position is stronger than many commentators believe.


This report deals with the top ten issues of withdrawal from the EU. It explains that specific, easily reached agreements on the mechanics of trade in both goods and services will not only resolve any problems that may arise when exporting to the EU but such arrangements will also protect and enhance our trade with the EU.

Theresa May needs to address in her EU speech the solutions outlined in this report. Brexit negotiators can draw on the findings of this new Bruges Group study which sets out a bold vision for Brexit and how exiting the EU, and even the single market and the customs union, can be made to work.

Continue reading
3183 Hits
0 Comments

MoUs – the key to a smooth Brexit?

Whichever form Brexit eventually takes, whether ‘hard’ or ‘soft’; most parties would like the transition to be as painless and smooth as possible. To ensure that the Brexit process runs seamlessly, the UK and the EEA countries could agree a time-limited transition deal as a temporary ‘stepping stone’ to the final outcome.

19th December 2016

The deal need not be an official treaty but could take the form of what is called a Memorandum of understanding or MoU.

As the UK government website states:

“An MoU records international "commitments", but in a form and with wording which expresses an intention that it is not to be binding as a matter of international law. An MoU is used where it is considered preferable to avoid the formalities of a treaty – for example, where there are detailed provisions which change frequently or the matters dealt with are essentially of a technical or administrative character; in matters of defence or technology where there is a need for such documents to be classified; or where a treaty requires subsidiary documents to fill out the details. Like a treaty, an MoU can have a variety of names and can also be either in the form of an exchange of notes or a single document. However, the formalities which surround treatymaking do not apply to it and it is not usually published. Confusingly some treaties are called memoranda of understanding. Although an MoU is not legally binding it should be no less carefully drafted than if it were a treaty, given that it is always the intention to perform all HMG's commitments, whether legally binding or not.”[1]

An MoU is an established device In public international law; less official that a treaty but more than a gentleman’s agreement. MoU’s can take various forms and can serve wildly different purposes. They can be short and cover one specific issue or be lengthy, covering a range of topics.

Examples include the Memorandum of Understanding on Trade and Investment (MOUTI) Between the Government of Canada and the Governments of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua[2] and the Memorandum of Understanding between the Council of Europe and the European Union[3]

While they lack the legal certainty of treaties, the semi-official nature of MoUs means that one (or several relating to different areas of co-operation) could likely be signed quickly, without extensive consultation, parliamentary chicanery or ratification delays – as opposed to a potentially lengthy Free Trade Agreement (FTA) ratification.

These interim documents could help avoid a potential ‘cliff edge’ scenario as the 2 year article 50 period draws to a close in 2019.

Once agreed, the document (or documents) should be signed by the Secretary of State for Foreign and Commonwealth Affairs on behalf of Her Majesty's Government, representatives of the European Council and European Commission (including the High Representative of the European Union for Foreign Affairs and Security Policy) on behalf of the EU and a representative from the EEA Council.

The text of the ‘deal’ should be officially sent to the FCO Treaty Section, The European Commission and The EEA Council. We would then receive their signed copies in exchange, under the established procedure of international law called ‘Exchange of Letters/Notes’.

As a sign of good faith, the MoU(s) (signed by all parties) could then be deposited with the Secretary-General of the United Nations. This would not make the document any more or less binding, but it would be a show of good faith and would reassure businesses and concerned groups that all sides were committed to a stable transition. MoU’s could therefore go a long way towards bridging the gap between our current EU membership and our final negotiated arrangement.

Below is a brief outline of what we believe the UK-EEA MoU could look like.

Memorandum of Understanding

The purpose of this Memorandum of Understanding (hereinafter referred to as "MoU") is to maintain co-operation and secure free trade in goods and services between the signatories of the European Economic Area (EEA) agreement and the UK.

This MoU is intended to maintain where possible the Status quo ante in terms of trade until a more permanent agreement can be reached between the Parties. 

This Memorandum of Understanding is not legally binding on the Parties. This MoU is agreed in good faith between the signatories, on the basis that it is a fair and honest representation of their intentions.

Duration and Term

This agreement is intended to last for a period of two years from the date of signature. It may be renewed once, for a period of 12 months if all Parties agree.

 

 

Memorandum of Understanding on Trade and co-operation between the United Kingdom and the EEA

BETWEEN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND, OF THE ONE PART, AND THE SIGNATORIES OF THE EEA AGREEMENT:

[THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA, THE CZECH REPUBLIC, THE KINGDOM OF DENMARK, THE FEDERAL REPUBLIC OF GERMANY, THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE REPUBLIC OF CROATIA, THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF LATVIA, THE REPUBLIC OF LITHUANIA, THE GRAND DUCHY OF LUXEMBOURG, HUNGARY, THE REPUBLIC OF MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF AUSTRIA, THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA, THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC, THE REPUBLIC OF FINLAND, THE KINGDOM OF SWEDEN, ICELAND, THE PRINCIPALITY OF LIECHTENSTEIN, THE KINGDOM OF NORWAY], OF THE OTHER PART, hereafter jointly referred to as the “Parties”:

RECOGNISING the longstanding alliances between the UK and the nations of Europe;

COMMITTED to renewing their close and lasting relationship that is based on common values, namely respect for democratic principles, the rule of law, good governance and free and fair trade;

DESIRING to maintain currently high levels of trade and investment and seeking to avoid future barriers to mutual trade and investment;

RECOGNISING that UK as a European country shares a common history and common values with the Member States of the European Union (EU) and the member states of the European Free Trade Association (EFTA);

RECOGNISING the importance of International trade and economic cooperation;

COMMITTED to combating organised crime and money laundering, to reducing the supply of and demand for illicit drugs and to stepping up cooperation in the fight against terrorism;

HAVING REGARD to the outcome of the 23rd June 2016 UK Referendum on EU membership;

BUILDING on their respective rights and obligations under the Marrakesh Agreement Establishing the World Trade Organisation, done on 15 April 1994 (hereinafter referred to as the ‘WTO Agreement’) and other multilateral, regional and bilateral agreements and arrangements to which they are party;

HAVE AGREED as follows:

CHAPTER I:

ARTICLE 1 DEFINITIONS

General definitions

For the purposes of this Agreement and unless otherwise specified:

GATS means the General Agreement on Trade in Services, contained in Annex 1B to the WTO Agreement;

GATT 1994 means the General Agreement on Tariffs and Trade 1994, contained in Annex 1A to the WTO Agreement;

Parties means, on the one hand, the European Union or its Member States or the European Union and its Member States within their respective areas of competence as derived from the Treaty on European Union and the Treaty on the Functioning of the European Union (hereinafter referred to as the 'EU Party'), and on the other hand, the UK;

TBT Agreement means the Agreement on Technical Barriers to Trade, contained in Annex 1A to the WTO Agreement;

TRIPS Agreement means the Agreement on Trade-Related Aspects of Intellectual Property Rights, contained in Annex 1C to the WTO Agreement;

UK-EEA Joint Committee means the UK-EEA Joint Committee established under Article 5.1 (The UK-EEA Joint Committee);

Vienna Convention on the Law of Treaties means the Vienna Convention on the Law of Treaties, done at Vienna on 23 May 1969;

WTO means the World Trade Organization; and

WTO Agreement means the Marrakesh Agreement Establishing the World Trade Organization, done on 15 April 1994.

ARTICLE 2 OBJECTIVES

1. The Parties hereby establish a free trade area on goods, services, establishment and associated rules in accordance with this Agreement.

2. The objectives of this Memorandum of Understanding (hereinafter referred to as "MoU") are:

(a) to liberalise and facilitate trade in goods between the Parties, in conformity with Article XXIV of the General Agreement on Tariffs and Trade 1994 (hereinafter referred to as ‘GATT 1994’);

(b) to liberalise trade in services and investment between the Parties, in conformity with Article V of the General Agreement on Trade in Services (hereinafter referred to as ‘GATS’);

(c) to provide appropriate protection of intellectual property rights, in accordance with the highest international standards, in conformity with TheAgreement on Trade-Related Aspects of Intellectual Property Rights(hereinafter referred to as ‘TRIPS’);

(d) to work to reduce non-tariff barriers between the parties, in conformity with the Technical Barriers to Trade (‘TBT’) Agreement;

(e) to promote peace and security for all Europeans.

Article 3 Relation to the WTO Agreement and other agreements

The Parties affirm their rights and obligations with respect to each other under the WTO Agreement and other agreements to which they are party.

Article 4 Customs duties

No new customs duty on imports shall be introduced in trade between the EEA states and the UK. Parties shall not institute any new taxes or other measures having an equivalent effect imposed on, or in connection with, the exportation of goods to the territory of each other.

Article 5 Joint Committee - establishment

1. A UK-EEA joint committee is hereby established, which shall be responsible for the administration of the agreement and shall ensure its proper implementation. For this purpose, it shall make recommendations and take decisions in the cases provided for in the agreement. These decisions shall be put into effect by the contracting parties in accordance with their own rules.

2. For the purpose of the proper implementation of the agreement the contracting parties shall exchange information and, at the request of either party, shall hold consultations within the joint committee.

3. The joint committee shall adopt its own rules of procedure.

Article 6 Joint Committee - constitution

1. The joint committee shall consist of representatives of the EEA and its signatory states, on the one hand, and of representatives of the UK, on the other.

2. The joint committee shall act by mutual agreement.

3. The joint committee shall meet at least twice a year in order to review the general functioning of the agreement, with the meetings alternating between Brussels/Strasbourg and London.

4. The joint committee shall, in addition meet whenever special circumstances so require, at the request of either contracting party, in accordance with the conditions to be laid down in its rules of procedure.

5. Each contracting party shall preside in turn over the joint committee, in accordance with the arrangements to be laid down in its rules of procedure.

6. The joint committee may decide to set up any working party that can assist it in carrying out its duties.

Article 7 political dialogue

1.       The parties shall hold, by mutual agreement regular meetings at Foreign Minister level.

2.       The parties shall take full and timely advantage of all diplomatic channels between the Parties, including within the United Nations (and specifically the UNECE), the Council of Europe, the OSCE and other international fora, to work towards resolution of shared problems.

3.       Other procedures and mechanisms for political dialogue, including extraordinary consultations, shall be set up by the Parties by mutual agreement.

Article 7 Combating crime and terrorism

1.       The Parties agree to work together at bilateral, regional and international levels to prevent and combat crime and terrorism in accordance with national and international law.

2.       The main focus and instrument of this co-operation shall be via INTERPOL

3.       The UK shall sign an operational agreement with EUROPOL

4.       The Parties agree to co-operate closely via the United Nations Office on Drugs and Crime (‘UNODC’) and World Customs Organization(WCO).

5.       The Parties agree to exchange information on terrorist groups and their support networks;

Article 8 Facilitating trade

1.       The Parties agree to work closely on customs matters in order to facilitate legitimate trade and to ensure the integrity of supply chains.

2.       The contracting parties also recognize the need for minimizing the incidence and complexity of import and export formalities and for decreasing and simplifying import and export documentation requirements.

3.       The Parties agree to work closely to minimize difficulties caused by rules of origin (ROO) and that on the importation of products from the territory of a contracting party into the territory of another contracting party, the production of certificates of origin should only be required to the extent that is strictly indispensable.

Final Clauses

1. This Memorandum of Understanding may be amended by the written concurrence of all Parties.

2. The Memorandum of Understanding comes into effect upon signature and will remain in effect unless terminated by consensus. Any Party may withdraw from this Arrangement with previous written notification, twelve months in advance to the other Parties.

Authentic texts

This Agreement is drawn up in duplicate in the Bulgarian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish, Swedish, Icelandic and Norwegian languages, each of these texts being equally authentic.

This agreement will be approved by the contracting parties in accordance with their own procedures.

Done at Brussels on the first day of May in the year two thousand and nineteen.

For the United Kingdom of Great Britain and Northern Ireland:

Für die Bundesrepublik Deutschland / For the Federal Republic of Germany:

Thar cheann Na hÉireann / For Ireland:

For the European Union / Pour l'Union européenne:

For the EEA Council: 

References:

 


[1] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293976/Treaties_and_MoU_Guidance.pdf

[2] http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/other-autre/ca-ac.aspx?lang=eng

[3] https://eeas.europa.eu/sites/eeas/files/mou_2007_en.pdf

 

 

[/pb_text][/pb_column][/pb_row]

Recent Comments
Robert Oulds
Thank for your comment. Very helpful. If he EU decides that the withdrawal agreement needs to have the status of an Association Ag... Read More
Tuesday, 03 January 2017 20:00
Continue reading
1927 Hits
2 Comments

The trade issues which must be solved by David Davis’ Brexit Department

Any withdrawal agreement must look at these issues and find practical solutions to make sure that goods enter the EU as seamlessly as possible.

5th December 2016
Type text for SEO (example Bruges Group : Image Title)

Brexit negotiations must aim to prevent the complexities of trade slowing the free flow of goods after Britain leaves the EU. Any withdrawal agreement between the EU and the UK, must look at these complexities and find practical solutions to make sure that trade enters the EU as seamlessly as possible.

 

The Bruges Group has already explored the solutions to ease the trade in services, click here to read the research. In this piece the practicalities of trade in goods is explored.

 

The biggest challenges to resolve are the practical logistics. Few, if any, so far, have looked at these issues from the perspective of eliminating, or at least mitigating, the real hurdles that would appear after Brexit.

 

Inside the EU, exporting to Berlin is effectively not any different from sending goods to Birmingham, just that the transportation will, due to the distance involved set a slightly greater logistical challenge. There is no requirement for burdensome bureaucracy when moving goods between EU member states. When goods from Britain are transported to the EU, just like those destined to our shores from the European Union, they come and go via our ports, be they channel ports like Dover or airports such as Heathrow. Presently this is with no let or hindrance. No administration is involved. In fact, national borders in terms of trade can be said to no longer exist within the European Union. At least some red-tape, has been eliminated. Yet, without a practical agreement businesses that are involved in either exporting to the EU, or importing from it, will face costly delays.

 

The enormous mutual dependency, between British and continental firms, rightly cited by many as a reason why an agreement will eventually be reached on issues such as trade tariffs, have, however, not considered that the high volume of trade can be a source of problems. This centres around the fact that all imports to the EU must go through customs posts.

 

The UK’s trade in goods with third countries outside the EU is often relatively unfettered because it is in bite-sized portions. The trade from Britain through the many customs posts of the numerous states around the globe to which Britain exports is in manageable quantities. However, the sheer scale of goods going through for instance French ports is staggering. Quite simply they do not have adequate facilities in place to deal with the enormity of post-Brexit trade. Ports in the UK and Europe are not up to managing the high volume of freight, they lack the necessary infrastructure. The UK does not at present have the capacity to dramatically improve the UK’s customs facilities to deal with trade coming from the remaining EU states. Planning for what would be a series of major construction projects has not yet begun, and nor have the financial resources been allocated. Serious question marks exist over France’s ability, let alone willingness, to upgrade their facilities to deal with trade coming from the UK. Furthermore, a special UK-EU agreement on customs clearance must be in place by Spring 2019. Without such an agreement there will be trade gridlock.

 

Tariffs in themselves are not the issue, time is. The cost of collecting the customs duties, a set percentage of their sale price agreed with the WTO and charged to the importer, makes any financial benefit for the EU almost irrelevant. Any ‘benefit’ comes from increasing rivals' costs to protect EU producers. However, with increasingly interdependent markets, with global value chains where the genesis of a manufacture rests in many nations which have supplied the numerous parts, such a strategy makes little economic sense.

 

The real advantage of eliminating tariffs for the exporter, and the business importing the product, is not the removal of this tax on trade. The main benefit is that without the need to produce the paperwork and payments to meet these customs duties, the item will be subject to less delays at customs posts.

 

Before solutions can be found to ease the process of trade the hoops and obstacles need to be explored. All non-EU companies that send good to the EU must either pay tariffs, complete paper work, and clear customs; sending the goods to be approved via what is known as a designated port of entry. Even if a free trade agreement is in place customs officers checking products and making sure the necessary bureaucracy is complete is a common place occurrence.

 

The trade process

 

Designated port of entry

When exporting goods to another territory the host nation can stipulate a designated port of entry for the product. At present Britain and the European Union are one trade zone the UK has free access to any and all established places where both people and produce can be admitted. The EU has the hypothetical ability in the short term to prescribe a port of entry, and terms, that are inconvenient for British exporters. However, this will be a serious breach of international trade law. Articles XI:1, XIII:1, V:2, V:6 and I:1 of the 1994 General Agreement on Tariffs and Trade now administered by the World Trade Organisation. Under these rules one country cannot be treated less favourably than any other state in the export and transit of goods. What is more, as both businesses and consumers on the continent depend upon British imports there is no reason to believe that such problems will arise. Regardless of how the UK leaves the EU it should be business as usual via the existing ports of entry. Indeed, Brexit negotiations should seek to expand them to include more destinations accessible via HS1, the Channel Tunnel.

 

So far so good. However, there are other serious issues.

 

Exporting to the EU from outside is not bureaucracy free

Exporting into the EU requires a convoluted process to be completed. Goods must have assigned to them an identification number, inputted at the port of destination. The larger importers find the process easier. They can make their declarations at the end of the month. Those who export less to the EU will, however, be faced with bureaucratic hurdles.

 

Clearance for use, allowing the product to go into circulation to be sold in the UK, or an EU country, needs to be obtained. The process for assessing this, even in the EU, will differ from country to country. Mostly, however, this is often just a theoretical problem, rarely do customs officials demand compliance with national standards and rarely do they conduct a strict examination of documentation declaring that an item conforms to national or EU standards. It is legally possible to detain goods on the grounds of differing standards, but in practice this only usually applies to items that are deemed to be dangerous, illegal, or subject to anti-dumping duty (a tax on products suspected of being sold substantially below their normal value).

 

Still, the process of shipping goods to and from the EU is not without other bureaucratic impediments. The freedom of the items is also strictly regulated. From outside the EU, any goods entering the EU, if not cleared at port, which can be a laborious process, must be stored in a bonded warehouse, also known as an Enhanced Remote Transit Shed (ERTS) warehouse. Until they are declared to customs for an approved treatment or use.

 

Transhipped cargo not in free circulation will also require what is known as a CMR document. The CMR is a consignment note with a standard set of transport and liability conditions, which replaces individual businesses' terms and conditions. It confirms that the carrier (i.e. the road haulage company) has received the goods and that a contract of carriage exists between the trader and the carrier. It derives from the Convention on the Contract for the International Carriage of Goods by Road.

 

The process of clearing customs is increasingly becoming electronic. Systems used by exporters that integrate with the British customs system are the CNS and Destin8 computer systems.

 

The VAT hurdle

Value Added Tax (VAT) is often charged on imported goods, that is in addition to any customs duties. The details must be entered onto the Customs Handling of Import and Export Freight (CHIEF) system. This system records the declaration to the customs authorities details of the goods whether they are transported by land, air and sea entering or leaving the UK/EU. It allows importers, exporters and freight forwarders to complete customs information electronically. This is not without charge.

 

If there is no prior agreement for each consignment, going to a specific destination, to clear customs the importer must produce customs records for each, pay VAT and the customs duty, if any. This will be calculated per the value of the item at its final point of sale. The VAT rate will differ from country to country, and even item to item. In some cases, a product will be exempt, VAT will not apply. In other cases, an item will be zero-rated, requiring the documentation to be completed but with no final payment. Even where tariffs are eliminated when importing from outside of the EU there is still the requirement to pay Value Added Tax. If the exporter is registered for VAT then this can be claimed back but only if they registered. There is also a requirement for an input VAT certificate to be completed.

 

Remaining in the EU’s customs union, bit being in the EU, does not eliminate the requirement for form filling to be completed. The requirement to clear customs and complete documentation, known as an ATA Carnet, to validate the origin of goods and confirm that they are free from tariffs even applies to Turkey. This country is considered part of the EU’s customs union and therefore has tariff free access for industrial products; but it is not bureaucracy free access.[i]

 

The EEA is not the answer on its own

The EU’s internal market, open to the EFTA states of Iceland, Liechtenstein and Norway, have sought to resolve some of the problems through the European Economic Area agreement. Beyond granting the theoretical access to the single market in services and the right to bid for public procurement, the EEA seeks to remove all technical barriers to trade. There is regulatory conformity and most importantly the European Economic Area has the mutual recognition of standards. Regulation EC 764/2008 of 9th July 2008 demands that all members allow goods that are legally sold in one country to be sold in another EEA state.

 

One of the main benefits of being part of the single market comes through the principle of mutual recognition. This allows businesses to export to the entire European Economic Area, the internal market, without having to seek standards approval. As the Single Market is still not complete some member states still have differing standards. The principle of mutual recognition is that if a product has been approved as safe and saleable in one member state then it can be sold in all. This bypasses potentially costly and time consuming safety and regulatory checks in each country where the good is sold.

 

The EEA agreement also abolishes customs duties between the states participating in the single market. However, EFTA/EEA members must still go through a customs clearance process and outlay for VAT. These time-consuming procedures apply even to states such as Norway. Britain renouncing its EU membership but retaining, through membership of the European Free Trade Association, its status as a part of the European Economic Area will not on its own answer the practical and bureaucratic trade hurdles.

 

Tariff free trade

Whilst every possibility exists of there being an agreement(s) on reducing tariffs between the UK and the does not in itself eliminate all the bureaucratic hurdles.

 

If a business is sending produce to the EU from a country that has a free trade agreement it must prove that they were mostly manufactured or re-worked in a country that had a free trade agreement with the EU. If the business cannot confirm the origin of the goods, then the tariffs will apply. This can be sidestepped by making some modifications to the products in the exporting state, yet this may be subject to investigation. This is a rare occurrence, yet the need for paperwork to prove it is not rare.

 

Rules of origin

If the goods are of UK origin and if Britain has a free trade agreement, namely no tariffs to pay, importing into an EU country may require a Certificate of Origin to show its provenance. If its tariff free origin cannot be proved, a customs charge will be applied. Certificates of Origin can be obtained from a relevant countries chamber of commerce, they are however, expensive to obtain.

 

Anything that is already inside the customs union that has originated from a non-member will have been charged at its original port of entry and can therefore circulate freely within the EU. At present, as the UK is an EU customs union member, British exporters to the other 27 do not have to prove that they comply with the EU’s rules of origin. As supply chains are becoming increasingly globalised the need to demonstrate an item’s origins can be a complex burden.

 

The Trade Policy Research Centre argue that ‘the process of adapting to rules of origin based duty-free trade under a new UK-EU free trade agreement would be tedious, costly and disruptive to trade.’[ii] However, some developments are making this concern less relevant. The reduction in tariffs, where many goods are zero rated, reduces the need to complete the administrative duties. The EU has extended the area in which origin can be accumulated to not only cover more states but also to allow for an item to be obtained and manufactured in a number of countries without the final product losing the benefit of being tariff free when it enters the EU. This system has been in existence in the EU and European Free Trade Association since 1997 and for Turkey since 1999. Over time the EU does grant greater allowance to other countries to claim exception from rules of origin. And from 2017 under World Customs Union rules the procedure declaring a products origin will be simplified.

 

These are hurdles but they can be overcome, through effective negotiation. Furthermore, the application of these rules does present opportunities for Britain. If a tariff free trade agreement is in place UK businesses can corner the profitable market for business assembling goods. The now complex supply chains that dominate global production can create jobs in the UK. Gate way Britain.

 

Britain obtaining tariff free access to the remainder of the EU, along with measures designed to speed the passage of goods through customs, and developing trade links with the third countries around the world, will benefit Britain. Having a more liberal regulatory regime and tariff free access to the EU’s single market will make the UK a base by which third country producers, who have entered preferential trade deals with Britain, can access the EU without being subject to tariffs.

 

Within Britain value can be added to goods and re-exported from the UK to the EU. This will allow exporters to sidestep the EU’s rules of origin regime. Britain will be able to become a regional value added production hub. The British economy will therefore not only benefit from the additional bilateral trade with other territories but will also capture a number of benefits:-

1.      Increased trade

2.      Increased freight and haulage through the UK as a pass through   onto final destination

3.      Increased assembly and manufacturing within the UK (to meet rules of origin that require a declaration to be made that at least partial reworking has occurred to the produce)

4.      Increased economic activity and employment and the resulting fiscal benefits

5.      Increased use of a made in Britain mark makes the UK’s regulatory regime more internationally relevant

 

Even in the EU, technical requirements on import processes as well as standards will differ from each country. However, the fear that EU legislation prejudicial to the UK may queer the pitch against British sales to the continent is probably unfounded. As Britain conforms to EU standards at present there is little, if any, divergence. Further, as an increasing proportion of technical standards originate from global bodies, agencies of the United Nations, or relate to international agreements on technical barriers to trade, there will not be a sudden deviation from permissive regulations. These international agreements are designed to encourage cross border trade. It is worth reiterating the fact that rarely do customs officials demand compliance with national standards and rarely do they conduct a strict examination of documentation declaring that an item conforms to national or EU standards.

 

David Davis’ Department for Exiting the European Union must, however, focus on addressing the bureaucratic trade hurdles that can cause delays at customs posts. The alternative will be even worse congestion on the M20 after Brexit than that which exists at present.

 


[i] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:265:0018:0038:en:PDF

[ii] Ronald Stewart-Brown and Felix Bungay, Rules of Origin in EU Free Trade Agreements, Trade Policy Research Centre, 2012

 

Continue reading
1966 Hits
0 Comments